Why turnaround investing?

Why turnarounds? The question should be...why not turnarounds?

What is turnaround investing?

Turnaround investing is the process of looking for investment opportunities in down-and-out companies that are poised to rebound: companies that Wall Street unjustly hates for one reason or another. Turnaround opportunities lie in companies that for various reasons have dropped in share price but are about to turn themselves around and when they do, investors who get in near the bottom can ride these investments for hefty gains on the way back up. These are what we call “maximum potential” investment opportunities. They could be big name stocks with emotionally-battered prices orrestructured bargains fresh out of bankruptcy--with healthy balance sheets and huge growth potential.

There are many reasons for the tremendous profit potential in turnaround situations, but most of them relate to the basic fact that most investors, including many “sophisticated” institutions, are afraid of turnaround situations. Most brokers and Wall Street analysts avoid turnaround situations because they have been burned by the stock on the way down. This means that they sell potential turnaround stocks too soon--as soon as the company’s troubles become known--and they buy them back too late, only after they are certain that the company will recover fully. When these investors bail out that is usually the time to buy in!

What is The Turnaround Letter?

The Turnaround Letteris a monthly newsletter and associated website that focus on distressed and turnaround investing. The first Turnaround Letterwas published back in 1986 and it remains one of the longest-standing and most successful newsletters on the market today.

"Turnaround investing" is now an industry buzzword butGeorge Putnam, IIIand The Turnaround Letterpioneered this concept 30 years ago and they have been successfully practicing it ever since. Mr. Putnam is one of the nation's leading experts on bankruptcies and turnaround investing, and his keen insight has resulted inThe Turnaround Letterbeing regared as one of the top-performing investment newsletterson the market. The Turnaround Letter's 15-year annualized return rate (as of 6/30/17) is 11.4%, versus the S&P 500's 8.1% for the same period.

What is The Turnaround Letter's approach to investing?

Our approach is simple: We avoid the "blue chips" and "hot" stocks that most investors are clamoring to buy. Instead, we search out companies that have had some problems and are temporarily out-of-favor but are in the process of turning around. These stocks seem like laggards when we first identify them, but as the turnaround becomes more evident, Wall Street will jump into the stock and push the price up--often dramatically.

Our approach has always been not to follow the crowd. We seek out unloved, down-and-out turnaround situations. The Turnaround Letter’sapproach to investing is designed to get you in before the good news is out: when prices are lowest and profit potential is highest--and before big investors realize their mistakes and swarm back in and bid prices (and profits) out of sight.

Turnaround stocks operate in an “inefficient” market. Brokers drop them; analysts ignore them and the companies themselves rarely make news and avoid publicity. We focus on stocks that most other investors ignore…down and out companies poised for a rebound.

Why is turnaround investing a good strategy for me?

The typical individual investor does not stand a chance investing in the “blue chips.” Their market is too efficient. How can you possibly compete with armies of trained analysts who instantly react at every industry and market blip?The Turnaround Letterbrings you rebound stocks that will not be short-circuited by giant pension funds, banks, insurance companies and by Wall Street in general. But once these stocks begin to regain favor and the big guys jump back in you have your best opportunity at substantial gains.

Isn't investing in turnaround situations risky?

On the contrary, our approach minimizes risk as we believe there is much less risk in a "troubled" stock that has already been hammered down by the market than in a "hot" stock that is trading at 30 or 40 times earnings. The hot growth stock will come crashing down if there is just a little bad news (or perhaps even good news that wasn't quite as good as Wall Street expected), but a stock that is already perceived as troubled may hardly budge on more bad news. Most stock losses come from high-flyers that crash but in turnaround stocks investors have anticipated the worst, which is why their prices are so low. A little more bad news is unlikely to affect them.

Turnaround investing can be very profitable, but it is not without pitfalls. Year in and year out many of the biggest winners on Wall Street are troubled companies that turn themselves around and return to favor with investors. Obviously, not every troubled company is going to turn into a success story. Some of them liquidate and others languish with depressed stock prices for years. Therefore, the key to turnaround profits is separating those companies that will recover and return to favor from those that won’t.

The Turnaround Letterbrings you stocks of large, well-know companies. We look for a solid core business that they can rebuild around plus a good brand name or franchise, low debt, decent cash flow and good dividends. We identify established companies just before they re-emerge with new profitability--just before they return to favor with brokers, analysts, institutions and the public. We do not guide you to risky start ups, new issues, “penny” mining stocks or speculative options or futures. Additionally, turnaround situations often can move independently of market trends, giving you opportunities for substantial profits in bull or bear markets.

However, you must choose your potential turnarounds carefully. A substantial number of troubled companies never do recover. My research shows that roughly one-half of all publicly-traded companies that enter Chapter 11 bankruptcy proceedings are successfully reorganized. There are plenty of turnaround opportunities out there…as long as you know where to look.

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Turnaround Investing Blog

With nearly $180 billion in assets under management, “activist” investment funds have become a powerful force in the capital markets: Nearly 40% of companies in the S&P 500 attracted activist attention in recent years. According to Activist Insight, 320 companies in the U.S. experienced an activist campaign in just the first half of 2017; but who, exactly, are these activists, what are they after, and what role do they collectively serve?
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Market-Beating Profit: The 200+ Club

Turnaround stocks present a unique opportunity for savvy investors to buy in at bargain prices. Take a look at this list of just a few of our purchase recommendations that have realized a return rate of 200% or better:

* Bristow remains in our active portfolio (currently as a Hold), and 1,390% gain is as of 7/19/17.

Five Struggling Stocks That Will Turn Around

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Kiplinger points out that despite the post-election stock market surge, not all stocks have benefited from the uptick: "More than 100 issues in the S&P 500 have fallen in price this year, including dozens that have slumped by more than 10%....Yet these stocks won’t all stay in the dumps forever. Some will mount a comeback in 2017, making it an opportune time to try to identify the best candidates."

Quoting George Putnam, Kiplinger details five value opportunities for the new year.